What is a Founders’ Agreement?
A Founders’ Agreement is a legal contract between two or more startup founders that defines their rights, responsibilities, equity ownership, and decision-making authority in the company. It’s essentially a prenup for co-founders—meant to prevent misunderstandings, disputes, and breakups from derailing the business later.
The agreement sets clear ground rules on things like how equity is split, who does what, what happens if someone quits, and how major decisions are made.
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Founders Agreement
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FOUNDERS AGREEMENT
AGREEMENT AMONG CO-FOUNDERS
This Founders Agreement ("Agreement") is made and entered into as of [ EFFECTIVE DATE ] by and among the following individuals (collectively, the "Founders" and each individually, a "Founder"):
| [ FOUNDER 1 NAME ] [ FOUNDER 1 ADDRESS ] (hereinafter "Founder 1") |
[ FOUNDER 2 NAME ] [ FOUNDER 2 ADDRESS ] (hereinafter "Founder 2") |
| [ FOUNDER 3 NAME ] [ FOUNDER 3 ADDRESS ] (hereinafter "Founder 3") |
1. VENTURE
1.1 The Founders agree to establish and operate a venture under the name [ COMPANY NAME ] (the "Company"), engaged in the business of [ BUSINESS DESCRIPTION ].
1.2 The Company shall be incorporated as a [ ENTITY TYPE ] under the laws of India. Each Founder agrees to execute all documents and take all actions reasonably necessary to give effect to such incorporation.
2. EQUITY OWNERSHIP
2.1 Upon incorporation of the Company, the equity shareholding among the Founders shall be allocated as follows:
| Founder | Equity Percentage | Role |
|---|---|---|
| [ FOUNDER 1 NAME ] | [ FOUNDER 1 EQUITY ]% | [ FOUNDER 1 ROLE ] |
| [ FOUNDER 2 NAME ] | [ FOUNDER 2 EQUITY ]% | [ FOUNDER 2 ROLE ] |
| [ FOUNDER 3 NAME ] | [ FOUNDER 3 EQUITY ]% | [ FOUNDER 3 ROLE ] |
2.2 No Founder shall transfer, assign, pledge, or otherwise encumber their equity interest in the Company without the prior written consent of all other Founders, except as expressly permitted under this Agreement.
3. VESTING SCHEDULE
3.1 Each Founder's equity shall be subject to a vesting period of [ VESTING PERIOD ], with a cliff of [ CLIFF PERIOD ] (the "Cliff"), commencing from the Effective Date. Following the Cliff, equity shall vest in equal monthly instalments over the remaining vesting period.
3.2 In the event a Founder voluntarily exits or is removed for cause prior to the expiration of the Cliff, that Founder shall forfeit all unvested equity. Post-Cliff, only vested equity shall be retained upon exit.
3.3 Accelerated vesting may be triggered upon a change of control, acquisition, or merger of the Company, as unanimously agreed by the remaining Founders in writing.
4. ROLES AND RESPONSIBILITIES
4.1 Each Founder agrees to dedicate [ COMMITMENT LEVEL ] of their professional time and efforts to the Company and shall not engage in any business activity that competes with or materially conflicts with the interests of the Company without the prior written consent of all other Founders.
4.2 The primary roles and responsibilities of each Founder shall be as set forth in Schedule A attached hereto and incorporated herein by reference. Each Founder shall perform their respective duties in good faith and with reasonable skill and diligence.
4.3 Day-to-day operational decisions shall be made by the Founder in whose functional domain the decision falls. Decisions involving capital expenditure above [ DECISION THRESHOLD ], strategic direction, new equity issuance, incurring debt, or admission of new co-founders shall require unanimous written approval of all Founders.
5. FOUNDER COMPENSATION
5.1 Prior to the Company securing funding of at least [ FUNDING THRESHOLD ], each Founder shall draw a monthly salary of [ FOUNDER SALARY ], subject to the Company's cashflow and mutual written agreement of all Founders.
5.2 Post-funding, compensation for each Founder shall be reviewed and revised by unanimous consent of all Founders, taking into account market benchmarks, the Company's financial position, and individual contributions.
6. INTELLECTUAL PROPERTY
6.1 Each Founder hereby irrevocably assigns to the Company, with full title guarantee and free from all encumbrances, all intellectual property rights — including but not limited to inventions, source code, designs, trade secrets, and know-how — created, conceived, or developed by such Founder (whether individually or jointly) that relate to the business of the Company, both prior to and during the term of this Agreement.
6.2 Each Founder agrees to execute any further instruments and take all steps reasonably necessary to perfect and record such assignment in favour of the Company.
6.3 Any pre-existing intellectual property of a Founder that is used by the Company but does not fall within Clause 6.1 shall be subject to a royalty-free licence granted to the Company for the duration of its operations, unless separately agreed in writing.
7. CONFIDENTIALITY
Each Founder agrees to keep strictly confidential all proprietary information, trade secrets, business strategies, customer data, financial information, and technical know-how of the Company, both during and for a period of [ CONFIDENTIALITY PERIOD ] following their departure from the Company. This obligation shall survive the termination of this Agreement.
8. NON-COMPETE AND NON-SOLICITATION
8.1 Non-Compete. During the term of this Agreement and for a period of [ NON COMPETE PERIOD ] following a Founder's departure, such Founder shall not, directly or indirectly, own, operate, manage, consult for, or be employed by any business that competes with the Company within [ NON COMPETE GEOGRAPHY ].
8.2 Non-Solicitation. During the term of this Agreement and for [ NON SOLICIT PERIOD ] following departure, no Founder shall directly or indirectly solicit, induce, or attempt to recruit any employee, contractor, customer, or business partner of the Company for their own benefit or for the benefit of any third party.
9. FOUNDER EXIT
9.1 Voluntary Exit. A Founder who wishes to exit the Company shall provide written notice of at least [ EXIT NOTICE PERIOD ] to the remaining Founders. The exiting Founder's unvested equity shall be forfeited, and their vested equity shall be offered first to the remaining Founders on a pro-rata basis at fair market value, as determined by a mutually agreed independent valuer.
9.2 Removal for Cause. A Founder may be removed by unanimous written resolution of all other Founders upon occurrence of: (a) material breach of this Agreement; (b) gross misconduct or fraud; (c) conviction of a criminal offence; or (d) sustained failure to perform agreed responsibilities. Upon removal for cause, all unvested equity shall be forfeited, and vested equity shall be subject to compulsory buy-back at a valuation determined by an independent valuer.
9.3 Death or Incapacitation. In the event of the death or permanent incapacitation of a Founder, their vested equity shall pass to their legal heirs or nominees, provided however that such heirs or nominees shall not acquire any management or operational rights in the Company without unanimous written consent of the remaining Founders.
10. DISPUTE RESOLUTION
10.1 The Founders shall first attempt to resolve any dispute arising under this Agreement through good-faith negotiation for a period of thirty (30) days from the date one Founder delivers written notice of the dispute to the others.
10.2 If the dispute remains unresolved, the Founders agree to submit it to mediation administered by a mutually agreed mediator.
10.3 If mediation fails within sixty (60) days, the dispute shall be referred to binding arbitration in accordance with the Arbitration and Conciliation Act, 1996 (India), with the seat of arbitration at [ ARBITRATION SEAT ], conducted in the English language before a sole arbitrator mutually appointed by the Founders.
11. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of India. Subject to Clause 10, the courts of [ GOVERNING LAW ] shall have exclusive jurisdiction over any matter arising out of or relating to this Agreement.
12. GENERAL PROVISIONS
12.1 Entire Agreement. This Agreement, together with any Schedules attached hereto, constitutes the entire agreement among the Founders with respect to its subject matter and supersedes all prior discussions, representations, and agreements, whether written or oral.
12.2 Amendment. No modification or amendment to this Agreement shall be valid or binding unless made in writing and duly signed by all Founders.
12.3 Severability. If any provision of this Agreement is held invalid or unenforceable, the remaining provisions shall continue in full force and effect.
12.4 Waiver. Failure by any Founder to enforce any right under this Agreement shall not constitute a waiver of that right.
12.5 Counterparts. This Agreement may be executed in counterparts, including electronic or digital signatures, each of which shall constitute an original, and all of which together shall form one binding agreement.
13. EXECUTION
|
[ FOUNDER 1 NAME ] Date: _______________ |
[ FOUNDER 2 NAME ] Date: _______________ |
|
[ FOUNDER 3 NAME ] Date: _______________ |
SCHEDULE A — ROLES AND RESPONSIBILITIES (to be attached separately)
This document is generated for informational purposes only and does not constitute legal advice. My Legal Pal recommends all agreements be reviewed by a qualified lawyer before signing.
A Founders’ Agreement is crucial if you’re:
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Starting a company with one or more partners
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Contributing unequal resources (money, IP, time, etc.)
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Building proprietary technology or IP
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Raising capital or seeking investment
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Trying to prevent co-founder disputes from turning into lawsuits
It protects everyone involved by establishing a legal baseline of how the company will operate and what happens if things go sideways.
Founders’ Agreement Enforceability?
Founders’ Agreements are legally binding and enforceable like any other contract—provided they’re properly drafted and signed. Local corporate laws and partnership regulations will affect how enforceable certain provisions are. Here’s how it looks in key jurisdictions:
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United States: Enforceable under state contract law. Useful to combine with bylaws or an LLC operating agreement.
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European Union: Recognized as a private agreement, but may require alignment with local company formation rules.
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India: Governed by the Indian Contract Act, 1872. Especially useful for early-stage startups before incorporation.
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United Arab Emirates: Valid under UAE Civil Code and DIFC contract law. Helpful in free zone startups and offshore company structures.
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Australia: Covered under Australian common law principles of contract and equity ownership.
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Singapore: Highly enforceable and recommended before company incorporation. Key to IP and equity protection.
If your founders are based in different countries, make sure the governing law and jurisdiction clause is clearly stated.
What You Need to Create a Valid Founders’ Agreement
To make it legally sound and comprehensive, include the following:
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Founder Details – Full legal name, address, and ID of each founder
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Equity Split – Who owns how much and what’s the basis
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Roles & Responsibilities – Who’s handling tech, ops, legal, sales, etc.
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IP Ownership – Transfer of any pre-existing IP to the company
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Vesting Schedule – Protects against a founder leaving early with equity
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Exit Clauses – What happens if a founder quits, is fired, or dies
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Decision-Making – How key business decisions will be taken
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Non-Compete & Confidentiality – Protection against competing ventures
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Dispute Resolution – How to resolve founder disagreements
Need a Custom Agreement?
If your business requires a tailored, legally compliant Founders’ Agreement specific to your industry, My Legal Pal can help. Our experienced legal professionals can draft a comprehensive contract that suits your unique needs and ensures you’re protected every step of the way.
